World Bank Press: Asia Needs Trillion Dollars Over Five Years To Boost Infrastructure

Asia Needs Trillion Dollars Over Five Years To Boost Infrastructure: Study

Asia-Pacific developing economies led by China need to invest more than one trillion dollars over the next five years to upgrade their infrastructure and sustain growth, Agence France Presse notes a report said Wednesday.

China alone is estimated to account for 80 percent of the total amount needed, the Asian Development Bank (ADB), the World Bank and the Japan Bank for International Cooperation (JBIC) said after a joint study. The 21 economies covered in the report face a massive funding challenge with more than $200 billion required annually from public and private sources for roads, power plants, communications, water and sanitation systems during the five-year period.

The report noted that some of the poorest economies such as Laos and Cambodia have little or no infrastructure investment while the 1997-98 Asian crisis forced others like Indonesia and the Philippines to spend less in this area. "The economic crisis is now over, most countries have resumed high level growth levels and private investment in general is beginning to recover but private investment in infrastructure is returning only very cautiously and governments are sometimes tentative in their response," it said.

The three lending institutions, however, noted important developments since the regional financial meltdown in the late 1990s. The countries affected now have more open governments, allowing vigorous debate on policy and spending issues, as well as stronger state institutions capable of handling large transactions and investments more efficiently. "And significantly, while it is hard to say that there is less corruption, there is less tolerance of it and fewer illusions about its hidden costs on business and the poor," they said. The report covered Cambodia, China, Fiji, Indonesia, Kiribati, Laos, Malaysia, Marshall Islands, Micronesia, Mongolia, Myanmar, Palau, Papua New Guinea, the Philippines, Samoa, Solomon Islands, Thailand, East Timor, Tonga, Vanuatu and Vietnam.

Reuters explains that the study said 65 percent of the required funds was needed for new investment and the remainder for maintenance of roads, power plants, communications, water and sanitation systems. Infrastructure was particularly important at a time when the region was "increasingly interconnected through supply chain production networks and expanding cross-border trade, fuelled by China, which has served as a magnet for regional growth", they said. For China, total needs account for almost 7 percent of GDP, the study estimated. ADB Vice-President Geert van der Linden told Reuters in an interview that China's rapid rate of growth requires an expansion in infrastructure as the economy demands more power generation and transmission networks. Refocusing on infrastructure was important for boosting both economic and social linkage within the region and reminding the donor community of the "essential part of development", which he said had been somewhat forgotten.

Dow Jones adds that private investment in infrastructure today accounts for only about five percent. Though overall investment levels in East Asia are high, averaging over 30 percent of gross domestic product since the 1990s, with several countries investing over seven percent of GDP in infrastructure alone, private investors have fed only about $190 billion into East Asian infrastructure since 1990, the study said. Private companies worldwide are willing to contribute to that investment as long as government policies and regulations are predictable.

Reuters adds that Jemal-ud-din Kassum, the World Bank's regional vice president for East Asia and the Pacific, stressed the need for proper use of infrastructure funds amid concerns about the impact on the environment and local communities and about corruption. "Over the course of the study, we heard clearly that while infrastructure can indeed be a force for good, we also have to make sure it is done well," Kassum told a symposium in Tokyo at which the three organizations presented the study. "Increased funding both from the private sector and particularly on the public side must be used in a way that maximizes the development impact. That means linking infrastructure projects to countries' overall development and poverty reduction strategies," he added.

Prudent Investor comments…

There are several items that can be gleaned from the article,

One, the appreciating currencies of the region translates to a more conducive environment for infrastructure investments

Two, the massive stash of US dollars by the held by region’s central banks increases the probability for increased regional investment spending as dollar diversification becomes a plausible option

Lastly, infrastructure investments would boost demand for basic materials, commodity and energy raw materials.